Netflix investor wobbles: Is broadcast TV history repeating, just faster?

Industry Contributor 17 Feb 2020 - 2 min read

Netflix investor wobbles: Is broadcast TV history repeating, just faster?

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In Netflix's fourth-quarter earnings call, the company’s stock fell 3.6 per cent. Facing increased debt, intense competition and interlinked accelerated content production costs – the platform is starting to look vulnerable in the U.S. Could this vulnerability cascade into the Australian market in 2020?

Key points

Despite Netflix beating subscription targets globally, U.S subscriber growth fell well short of expected levels
Intense competition from existing and new players like Disney and Hulu continues to disrupt Netflix. Other new entrants in HBO Max (Warner) and potentially Peacock (NBC) are looming.
Netflix will have to rely more on its own (expensive) content. For a platform that doesn’t know which part of its library drives and maintains subscriptions, this could be problematic.

Is Netflix suffering the same long term health challenges of the broadcasters that it disintermediated? Netflix's story is transfixing. Having begun life as a “need to have” platform, it may soon become more of a “nice to have” platform and suffer from audience “platform fatigue”.

The position of dominance that Netflix achieved globally and locally, seemed always to be a holding position.

With increased SVOD competition hotting up, consumer share of wallet has never been more pressured. Key Netflix licensed properties like The Office and Friends in the U.S. are being taken back by the studios that made them - to stream on their own platforms. This licensed content is being replaced by more expensive original content which puts more pressure on the Netflix business model. Coupled with this, the ability to raise prices as more SVOD services are launched doesn’t seem realistic and is more likely to create subscriber churn.

More and more competition has come into the Australian market, historically dominated by Netflix, Stan and Foxtel. Additional to the heavyweights of YouTube and Amazon Prime, we have Kayo Sports, Disney+ and Apple TV+. Consequently with this flurry of new entrants – which is effectively a rebadging exercise of existing offerings coupled with more content being produced – we may assume that Australians may be more critical in appraising the value of which service they are happy to pay for.

The experience of the US market enforces the need to have a clear understanding of what content and drives subscriptions and what retains the viewers and brings them back for more. The competition for audiences has never been more intense and this appears to be headed for Australian shores for Netflix. The investment in content to feed the SVOD market appears to only be growing. There seems a real opportunity for single minded platforms in Australia that invest in local content and sport, that can better understand the levers of growth. Coupled with this is how local FTA media owners partner with local or global content platforms to provide a better end to end consumer experience and challenge Netflix dominance.

Where once sleep was famously said to be Netflix’s biggest enemy, compared to its rivals, now perhaps that dynamic is beginning to change. There will be deep focus on subscription numbers in 2020 both for Netflix and its competition.